The Historian’s Notebook: The Nobel Laureate Who Pioneered Modern Behavioral Finance at Yale

The Historian’s Notebook: 50 Years of Business & Society is a blog series created in preparation for the 50th anniversary of Yale SOM in September 2026. The series is written by Yale SOM’s resident historian, Michelle Spinelli. Reach out if you have an idea for a blog post, memories or photos to share, or an inquiry about SOM history.

One Thursday in January 2014, Yale SOM students, faculty, and staff packed Zhang Auditorium in the newly opened Edward P. Evans Hall to listen to Robert Shiller, now the Sterling Professor Emeritus of Economics, reprise his 2013 Nobel Prize lecture, “Speculative Asset Prices.” Nicholas Barberis, the Stephen and Camille Schramm Professor of Finance at SOM, introduced Shiller as being responsible for “some of the most innovative work of any economist in his generation.”

Just a few weeks prior, Shiller had accepted the Nobel Prize in Economic Sciences along with Eugene F. Fama and Lars Peter Hansen for research that showed that while the price of stocks and other assets cannot be predicted accurately in the very short term, more accurate predictions can be made over a period of years.

Shiller’s research, widely viewed as the starting point for modern behavioral finance, examined stock prices over the previous century and concluded that they were too volatile to be explained only by investors rationally forecasting future dividends. Instead, Shiller argued, irrational thinking, like bias and emotion, played a role. Shiller challenged the efficient market hypothesis, which holds that securities prices properly reflect all available information. The argument “got me in a lot of trouble,” Shiller later remarked, because many thought it oversimplified the place of dividends in the stock market.

Shiller’s work has helped to explain market volatility and the speculative bubbles that can be fueled by mass misinformation and herd instinct. He predicted the collapse of both the dot-com bubble and the U.S. subprime housing bubble. Shiller has also written syndicated articles and books for popular audiences, including Irrational Exuberance, an analysis and explication of speculative bubbles that focuses on real estate and the stock market, and Animal Spirits, an exploration of the government’s role in restoring confidence in the economy, which he co-authored with fellow Nobel laureate George Akerlof.

The audience at Zhang Auditorium was particularly eager to hear Shiller’s talk because of his central role in making Yale SOM a leader in behavioral finance research—the field he pioneered while at Yale. He was instrumental, for example, in facilitating a 2004 grant of $1.6 million from Yale College alum Andrew Redleaf and his company, Whitebox Advisors; the grant enabled the International Center for Finance to engage in more behavioral finance research initiatives, expand outreach, and establish the Yale Summer School in Behavioral Finance, now a widely known program.

Shiller has also attracted faculty with interest in behavioral finance to the school, including Kelly Shue, James Choi, and Barberis, who said he came to SOM in 2004 “to continue the tradition of the work that Shiller began.”

With Shiller’s support and encouragement, Barberis launched the Yale Summer School in Behavioral Finance in 2009. The one-week intensive course of study is offered every two years and educates PhD students from across the globe on path-breaking research. The summer school has now hosted close to 400 students, many of whom have become prominent behavioral finance researchers in their own right.

Shiller retired in 2022, but behavioral finance remains a core area of research and exploration at the school. “Inspired by Bob’s example, SOM faculty and graduate students have been producing remarkable behavioral finance research that has made Yale one of the leading centers, if not the leading center, for innovation in this field,” Barberis says.